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Why companies must reinvent supply chains to be fit for the future

99 minute read 09 Sep 9999

Companies need to reinvent traditional supply chains whose fragility and inherent inefficiencies have been highlighted by the pandemic.

In brief

  • The failures of traditional supply chains during the COVID-19 pandemic have shown that they are highly vulnerable to disruptions.
  • Companies must therefore reinvent their supply chains to achieve complete transparency and build resilience.
  • They need to take key actions, such as building a robust supply chain talent pipeline and focusing on supply chain sustainability.

Complacency sets in when a business is smooth sailing. It takes a disruptive event like the COVID-19 pandemic to test supply chain resilience and most organizations fell short.

How EY can Help

Before COVID-19, global supply chains ticked many boxes: lower labor and operating costs, wider product ranges and greater reach to new markets. When the pandemic struck, it didn’t just cause unprecedented supply chain disruption, but also highlighted the fragility and inherent inefficiencies of traditional supply chains. Lead times expanded exponentially, manufacturing capacity stalled, ports became congested and transportation ground to a halt. Excessive reliance on one supplier or location caused a domino effect of expensive downtime along the line.

But COVID-19 is just one of many disruptors driving business leaders to reimagine their supply chains. Labor, energy and raw material costs as well as freight rates have increased significantly. Customer expectations are also evolving rapidly, with a greater focus on ethical sourcing, sustainability and corporate social responsibility.

To respond quickly when disruption hits, companies have started to reimagine and redesign their supply chains in four important ways:

  • Shorter, more localized supply chains require more technology-enabled and analytics-driven capabilities. They also challenge some core principles upon which many multinationals have built their supply chain operating models.
  • Multiple sources of supply as well as accommodating excess capacity and volume redundancy can strengthen resilience.
  • Businesses are forming omnichannel connections with customers as the way they interact with them is changing. Transitioning from B2B to B2C results in new operational requirements and challenges.
  • A shift toward multiple planning centers is expected, with markets clustered by similar demand characteristics and supply sources.

The EY white paper, Supply chain reinvention: what you need to start and stop now, examines several factors that are critical to the successful redesign of supply chains: technology, talent, supply chain sustainability and avoiding the taxation trap.

How EY can Help

Leverage technology for total transparency

Technology plays a key role in the effective redesign of supply chains. Many businesses were unable to anticipate supply chain failures during the pandemic due to a lack of end-to-end supply chain visibility in real time. This would have allowed them to identify disruptions and make informed decisions in a timely manner.

By leveraging advanced technologies, such as artificial intelligence (AI), supply chain control towers allow businesses to understand, prioritize and address critical issues in real time. Unplanned events can be predicted before they have a chance to become major disruptions.

Build a robust supply chain talent pipeline

Placing humans at the center of transformation and having the right skill sets in the right roles will scale up supply chain productivity and efficiency. To build a strong supply chain talent pipeline, companies need to consider disruptors that rewrite the supply chain skill set, including geopolitics and the emergence of the gig economy. Talent with critical planning, manufacturing, AI and machine learning skills is scarce. Companies must therefore reassess talent acquisition, development and retention to compete in the market for top supply chain talent.

Building a robust supply chain talent pipeline requires companies to consider disruptors that greatly change the supply chain skill set as well as review talent acquisition, development and retention to compete for top supply chain talent.

Focus on supply chain sustainability

The pandemic has driven a new focus on sustainability as the positive environmental impact of lockdowns and other restrictions revealed the potential for the planet to heal. According to a recent EY Future Consumer Index global survey, more consumers have aligned with a “planet first” priority since October 2021, compared with earlier periods.

 

Many businesses are aligned with similar priorities. In the October 2022 EY CEO Outlook Pulse Survey, 42% of Asia-Pacific CEOs said building sustainability as a core aspect of all products and services is their most important strategic priority over the next six months. Companies can tap into technology to align products and services with sustainability goals. For example, digital tracking helps identify emission-reducing opportunities and supply chains can be stress-tested with the help of AI-enabled scenario modeling. Traditional negotiations with suppliers based on low cost and immediacy of supply are also making way for those based on mutual benefit, sustainability, traceability and trust.

Avoid the taxation trap

With a shift to decentralization of sourcing and production, companies need to consider tax implications, in addition to technologies, suppliers and talents. Fragmentation and localization of supply chains bring more complexity and companies may be required to revisit their international tax structures as legal entities and tax treatments change. Transfer pricing policies, in particular, must be re-examined to address the relationships between cost and revenue.

 

Supply chains fit for the future are founded on end-to-end interconnectivity, supported by technologies that provide complete transparency and a strong supply chain talent pipeline. They are also aligned with sustainability goals and avoid the potential taxation pitfalls. Business leaders need to address the big question for every organization — am I taking the right steps to bring visibility, build resilience and ultimately reinvent my supply chain?

 Supply chain reinvention: what you need to start and stop now

Request a copy of the white paper.

Summary

Companies must reinvent their supply chains for resilience as the pandemic has highlighted vulnerabilities of the traditional supply chain operating model. By leveraging technology for end-to-end visibility, creating a strong talent pipeline, focusing on supply chain sustainability and avoiding the taxation trap, companies can build resilient supply chains that are fit for the future.

About this article

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.